For-profit colleges: Great deal for taxpayers. But for students?

For-profit colleges leave students with too much debt, some in Washington are saying. Even though graduates of for-profit colleges might have huge loans to repay, they are a good deal for taxpayers, a recent study says.

ByMary Helen Miller, CorrespondentJune 1, 2011

Aja Holmes studies for her online college classes at The University of Phoenix in Raleigh, N.C. , in this Nov. 23, 2009 photo. Are for-profit colleges a better deal for taxpayers than for individual students?

For-profit colleges represent the fastest-growing sector of higher education in the United States.

And it's easy to see why: They have a huge online presence, recruit effectively, make college accessible to just about anyone, and allow flexible schedules for students already in the workforce. They're also a good deal for taxpayers – soaking up few funds from the public purse but turning out graduates who, over the course of a lifetime, will get better jobs and pay far more income tax than those who just graduate from high school.

There's just one sticking point: debt. Instead of taking loads of public funds, for-profit colleges and universities like The University of Phoenix or Kaplan University rely on their students to take out big loans to finance their schooling. The average student debt is so high that next week, for the fifth time, Sen. Tom Harkin (D) of Iowa will hold hearings on the subject in the US Senate.

Student debt is certainly more pronounced than at other types of schools, research suggests. A larger share of students graduate with debt – 96 percent at for-profit institutions versus 62 percent of graduates from public universities and 72 percent of graduates from private nonprofit institutions, according to data from the federal National Postsecondary Student Aid Study.

The debt is also more onerous, on average. For the Class of 2008, students who took out loans had an average debt of $33,050 at for-profit colleges, $27,650 at private nonprofit institutions, and $20,200 if they attended a public university, the student aid study indicates.

Even though students at for-profits accumulate more debt and use some public money in the form of federal Pell grants, those colleges might be a better deal for taxpayers than other institutions, says a study released in May 2011 from the American Institutes for Research and the Nexus Research and Policy Center.

After subtracting direct tuition subsidies, tax exemptions for public and nonprofit institutions, and money given to students in the form of federal grants, the study calculated that for-profit graduates would still pay back, on average, $60,948 more in income taxes in a lifetime than a high school graduate would.

By comparison, graduates of the most competitive private nonprofit schools would pay back an extra $88,402, and graduates of the most competitive public institutions are a net loss to taxpayers, costing them an average of $9,278 per degree.

The study concludes, “Strictly, from a taxpayer perspective, for-profit institutions represent a better deal than tax-exempt not-for-proﬁt or public institutions.”

"We believe very strongly in the private sector," including for-profit and nonprofit institutions, says Jorge Klor de Alva, president of the Nexus Research and Policy Center and a coauthor of the study.